Stock Market Rally Soars, But Flashes Warning Sign; Tesla Unveils Much-Cheaper Model Y| Investor’s Business Daily

Dow Jones futures rose modestly early Friday morning, along with S&P 500 futures and Nasdaq futures, ahead of Friday’s jobs report. Micron Technology (MU) earnings a Boeing 737 Max settlement and a new, lower-price Tesla Model Y were in focus. The stock market rally had a powerful session, with the Dow Jones, S&P 500 index, Nasdaq composite and Russell 2000 all hitting record highs.


But there are signs that the market rally is getting extended.

Tesla (TSLA) continued to soar Thursday on yet another price-target hike, making Elon Musk the richest man in the world. But is Tesla stock getting extended?

Late Thursday, Tesla listed a Model Y Standard Range option, something CEO Elon Musk said would never be offered. A seven-seat Model Y option is now available as well.

Micron earnings topped views, while the memory-chip maker also guided high. After rallying to its best levels since 2000, Micron stock rose modestly overnight.

Micron earnings should be good news for other memory plays, including equipment giants Lam Research (LRCX), Applied Materials (AMAT) and KLA Corp. (KLAC). LRCX stock, AMAT and KLA have been surging this week, perhaps in anticipation of bullish Micron earnings.

Taiwan Semiconductor — a major customer for Lam Research, Applied Materials and KLA — reports December sales on Friday. Next week, earnings are on tap. Taiwan Semi is expected to announce heavy capital spending. TSM stock rallied 5% on Thursday, hitting a fresh high.

Boeing 737 Max Settlement

Boeing (BA) will pay more than $2.5 billion to settle a Justice Department criminal charge that the Dow Jones aerospace giant concealed key information from the Federal Aviation Administration regulators investigating the two 737 Max crashes. It’ll pay a criminal penalty of $243.6 million, compensation payments to Boeing customers of $1.77 billion, and $500 million for a crash victim beneficiaries fund.

Boeing stock fell a fraction in overnight trading. The muted reaction suggests investors are happy to move forward, with the Boeing 737 Max flying again. BA stock edged up 0.8% to 212.71 on Thursday.

Sarepta Therapeutics (SRPT) announced mixed results for its gene therapy targeting a form of muscular dystrophy. The gene therapy produced a key protein, but no improved muscle function after one year. Sarepta stock plummeted overnight.

Tesla stock and TSM are on IBD Leaderboard. TSM stock, LRCX and AMAT are on IBD 50.

Dow Jones Futures Today

Dow Jones futures rose 0.5% vs. fair value. S&P 500 futures climbed 0.4% and Nasdaq 100 futures advanced 0.3%.

Dow Jones futures will likely move on the December jobs report, due out at 8:30 a.m. ET on Friday. The consensus is for a gain of just 65,000 jobs as coronavirus shutdowns stall the economic recovery. An outright jobs decline would be a bad sign, though it could also spur a bigger, faster stimulus package.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

That’s been true for the past several days. Dow Jones futures have not foreshadowed regular-session

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live.

Coronavirus News

Coronavirus cases worldwide reached 88.52 million. Covid-19 deaths topped 1.90 million.

Coronavirus cases in the U.S. have hit 22.15 million, with deaths above 374,000. On Thursday, the U.S. hit daily records for new Covid cases and coronavirus deaths for a second straight day.

The U.K. has added more than 50,000 cases for 10 straight days. England recently went on lockdown.

Election 2020 Is Finally Over

A day after pro-Trump rioters stormed the Capitol building, there is now relevant clarity from Washington. With the Georgia runoffs and the Electoral College certification count now out of the way, the Election 2020 appears to finally be over. Joe Biden will become president on Jan. 20, with Democrats also holding the House and Senate, albeit with wafer-thin majorities.

Stock and bond investors are pricing in expectations for bigger stimulus and other spending measures in the coming months, with policies that boost alternative-energy and marijuana plays. Expect greater involvement in health care, but the changes could help health insurers and hospitals.

Stock Market Rally

U.S. Stock Market Today Overview

Index Symbol Price Gain/Loss % Change
Dow Jones (0DJIA) 31041.13 +211.73 +0.69
S&P 500 (0S&P5) 3803.79 +55.65 +1.48
Nasdaq (0NDQC ) 13067.48 +326.69 +2.56
Russell 2000 (IWM) 208.16 +3.63 +1.77
IBD 50 (FFTY) 42.50 +1.28 +3.11
Last Update: 4:06 PM ET 1/7/2021

The stock market rally enjoyed big gains Wednesday. Tech and growth names reclaimed leadership, but it was a broad-based advance.

The Dow Jones Industrial Average rose 0.7% in Thursday’s stock market trading. The S&P 500 index popped 1.5%. The Nasdaq composite leapt 2.6%. The Russell 2000 climbed 1.9%.

Bitcoin surged above $40,000 intraday before pulling back slightly.

Growth stocks had a big day. Among the best ETFs, Innovator IBD 50 (FFTY) rallied 3.1%, while the Innovator IBD Breakout Opportunities ETF (BOUT) advanced 3.6%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 2.75%, rebounding from its 10-week line after slumping since Dec. 22. The VanEck Vectors Semiconductor ETF (SMH) continued to power higher, gaining 4.1%. TSM stock is the No. 1 holding of SMH. MU stock, AMAT, LRCX and KLAC are also notable components.

Micron Earnings

Micron earnings jumped 48% to 71 cents for its fiscal first quarter. Revenue grew 12% to 5.77 billion. Wall Street had forecast Micron earnings of 71 cents a share on sales of $5.73 billion.

Citing improving DRAM fundamentals, the memory-chip giant guided to fiscal Q2 EPS of 75 cents on sales of $5.8 billion. Analysts expected Micron earnings of 67 cents on revenue of $5.55 billion.

Micron stock rose 1% in after-hours action. On Thursday, MU stock rose 2.6% to 79.11, a fresh 20-year high. That was just out of buy range from a three-weeks-tight pattern with a 74.71 buy point. Micron stock initially cleared that level on Dec. 31, but it was a risky buy with earnings looming.

Memory Plays

Lam Research, perhaps the most memory-exposed of the big chip-equipment makers, was little changed in extended trade. LRCX stock rose 3.6% on Thursday to 514.46, briefly clearing a short consolidation and hitting a record high. Shares have rallied 8.9% this week, rebounding from their 21-day exponential moving average and from just above the 10-week line, offering an aggressive entry for LRCX stock.

AMAT stock edged higher in overnight trade. On Thursday, Applied Materials stock popped 4.1% to 94.56, hitting a new high after clearing a short consolidation. AMAT stock is up 9.6% this week, also rebounding from its 21-day line.

KLA stock was quiet in late trading. On Thursday, shares jumped 4.9% to 278.19, clearing a four-week consolidation that’s actionable. KLAC stock has surged 9.3% so far this week, rebounding from its 21-day line and near its 10-week, like Lam Research.

Taiwan Semiconductor earnings are due Jan. 14. The capital spending forecast for the world’s largest chip foundry will be key for Lam, Applied Materials, KLA and others.

Tesla Stock Extended?

Tesla stock leapt 7.9% to 816.04, hitting yet another record high. That move made Elon Musk the richest man in the world, passing Amazon (AMZN) CEO Jeff Bezos.

Is Tesla stock getting too extended? TSLA stock is up nearly 16% this week and 75% from the 466 cup-with-handle buy point cleared on Nov. 18. It’s now 136% above its 200-day line, a huge gap so deep into a rally.

William O’Neil research has found that when growth stocks get 100%-120% above their 200-day line it’s a big warning sign. It’s not a sell signal, but a shot across the bow. Investors should be on the lookout for defensive sell signals, such as new highs in low volume or climax-type action. Investors also could sell some shares into strength.

Tesla stock appears to heading toward vertical once again, rising for 10 straight sessions, though it’s not showing classic climax behavior.

Take a look at the character of TSLA stock.

In September 2013, at the end of Tesla’s first big run, shares were 129% above their 200-day line.

On Feb. 4, 2020, Tesla stock hit a peak after a climax-type run, closing the day 198% above its 200-day line.

On July 17, TSLA stock closed up 145% above its 200-day, and that’s after reversing lower from a big intraday spike.

On Aug. 31, Tesla stock set a record close, up 191% from the 200-day line. Shares officially peaked intraday on Sept. 1.

Tesla stock is driving and riding an EV stock frenzy. Chinese rival Nio (NIO) rose 7.5% to 54.28, nearing a 57.30 buy point, according to MarketSmith analysis. It’s currently 171% above its 200-day line. But when Nio stock set a closing high on Nov. 23, it was 318% above the 200-day.

Both Tesla stock and Nio continued rising overnight.

When To Sell Top Growth Stocks: How Far Does It Rise Above The 200-Day Line?

Tesla Model Y SR

Thursday night, Tesla listed a Model Y Standard Range, or SR, for $41,990. That’s $8,000 cheaper than previous base model, the Model Y LR, at $49,900.

Also, Tesla offered a 7-seat option on the SR and LR variants, for an extra $3,000. It’s unclear if the third row of seats will have enough room for normal-sized adults.

The SR variant has a listed range of just 244 miles, vs. 326 miles for the LR and 303 miles for the Performance version.

Elon Musk had tweeted last July that a Tesla Model Y SR would never be available, saying the sub-250 mile range would be “unacceptably low.”

However, there were signs that Model Y demand in the U.S. had started to wane by the end of last year. Meanwhile, the Ford (F) Mustang Mach-E just started deliveries at the very end of last year, while the Volkswagen (VWAGY) ID.4’s U.S. debut is in March.

The Ford Mach-E starts at $42,895. But after the $7,500 federal tax credit, it’s only $35,395.

The VW ID.4 will start at $39,995, or $32,495 after the federal tax credit. Starting in 2022, when VW makes the ID.4 in Tennessee, it’s said the crossover will start at $35,000, or $27,500 after the tax credit.

The base Mach-E has a listed range of 230 miles, while the ID.4 has 250 miles. That’s roughly comparable to the Model Y SR, while still being considerably cheaper. Also, Tesla vehicles tend to fare poorly in real-world mileage tests vs. official ranges compared to other electric vehicles.

Meanwhile, Baidu (BIDU) will team up with Chinese automaker Geely to make electric vehicles, according to multiple reports. Baidu would be majority owner of a standalone company, with Volvo parent Geely doing the manufacturing. The Chinese search giant has worked extensively on driver-assist technology.

Baidu stock has soared in recent weeks, in part on reports that it would move in EVs.

Stock Market Rally Extended?

How about the broader stock market rally?

The Nasdaq is now 7.2% above its 50-day line. That’s getting slightly extended. Typically, 6% is where the Nasdaq might pull back. Over the past year, getting to 7% or more has often led to some brief pullbacks as well as the September correction.

On Dec. 8, the Nasdaq closed 7.7% above its 50-day line. The following session, the Nasdaq sank 1.9%, with further selling the following morning before recovering.

QQQ, the Nasdaq 100 ETF, is 5.6% above its 50-day, reflecting the lackluster performance of tech giants. The S&P 500 is 5.4% above that key level. That’s certainly on the edge of being extended for the broad market index

Bullish sentiment remains relatively high, while pockets of froth — Bitcoin and related plays, electric-vehicle stocks such as Tesla, and some recent IPOs — remain.

Ideally, the major indexes would move sideways or edge lower for a few weeks, as the S&P 500 did heading into Christmas. That would let the 50-day line catch up to the major indexes without an unnerving sell-off. It would also let leading stocks set up new bases, tight patterns or handles. But, the market is going to do what it’s going to do.

What To Do Now

Investors should stay vigilant — always a good idea. There’s no compelling need to sell, though there’s nothing wrong with selling into strength. Look at your holdings. Are some getting too extended? Is there too much exposure to 2020 winners that have been lagging, such as tech titans and cloud software plays?

Consider the stock market rally’s recent tests of the 21-day moving averages. Many growth stocks suffered significant losses on what was ultimately a modest, brief market pullback. A Nasdaq retreat to the 50-day line likely would trigger sharp sell-offs in many market leaders.

Make sure to cast a wide net for your watchlists. Focus on relative strength and companies with strong earnings estimates. Many cyclical stocks had a terrible 2020 due to coronavirus shutdowns and severe economic recession, but are rebounding now with analysts betting on 2021 comebacks.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.


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